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Vodafone Secures Indian Transfer Pricing Ruling

by Mary Swire,, Hong Kong

13 October 2015

The High Court of Bombay in India has ruled in favor of UK telecom giant Vodafone in a transfer pricing dispute with the Indian tax authority worth INR85bn (USD1.3bn).

Vodafone had brought an appeal against a ruling from India's Income Tax Appellate Tribunal (ITAT) in favor of the tax authority on December 10, 2014.

The ruling, which was delivered on October 8, 2015, pertains to the sale of Vodafone India Services, a call center business in Ahmedabad, India. The tax authority had claimed that the sale transaction had been structured to avoid Indian transfer pricing laws inappropriately.

Accepting Vodafone's argument, the Bombay High Court set aside the ITAT's ruling and said the transaction should not have been subject to India's transfer pricing law, agreeing with Vodafone's argument that the transaction was not an international transaction and gave rise to no taxable income.

It is anticipated that the ruling will support the arguments of other multinational corporations also appealing transfer pricing adjustments in similar circumstances. The Government may however choose to appeal the ruling before the Supreme Court.

In October last year, Vodafone won a separate transfer pricing dispute worth INR32bn (USD494m) concerning the issuance of equity shares in FY2009-10 by Vodafone India's resident subsidiary to its UK parent as part of a rights issue.

In that case, the Bombay High Court ruled the transaction did not give rise to income taxable under the 1961 Act and therefore could not be subject to transfer pricing rules. Interestingly, the Government in January 2015 announced that it would not appeal that ruling and later instructed tax officials to follow the ruling in other similar transfer pricing disputes, in a move welcomed by foreign investors.

TAGS: compliance | tax | investment | business | tax compliance | India | tax avoidance | law | enforcement | tax authority | agreements | multinationals | legislation | tax planning | transfer pricing | tax reform | trade | telecoms | Tax

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